Economy

Moody’s lowers India’s growth rate to 6.2 per cent in 2019

Our Bureau New Delhi | Updated on August 23, 2019 Published on August 23, 2019

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Lowered the growth projections of 15 other Asian economies, including China and Japan

Global rating agency Moody’s on Friday lowered the growth projection for India by 60 basis points (100 basis points mean 1 percentage point). The growth rates for India during 2019 and 2020 have been lowered to 6.2 and 6.7 per cent respectively.

It also lowered the growth rate 15 other Asian economies, including China and Japan.

Moody’s in its Regional Growth Update observed that weaker trade and investment weigh on gross domestic product (GDP) growth despite stable private and public consumption. It also mentioned that domestic factors have had a greater influence in India, Japan (consumption tax hike) and the Philippines (budget delay). “Cooler business sentiment and slow flow of credit to corporates contribute to weaker investment in India,” it observed.

RBI’s repo rate cut

It has also made a note of four successive policy rate cuts by the Reserve Bank of India (RBI).

The central bank lowered the policy rate (better known as Repo rate or rate at which RBI lends to scheduled commercial banks) by 110 basis points. “Reserve Bank of India has been most active in cutting rates in support of growth, but lingering financial sector issues may blunt the effectiveness of monetary stimulus,” it said.

The agency noted that generally healthy balance sheets and fiscal positions across the region, with the exceptions of India, Malaysia, Mongolia and Sri Lanka, provide space to pursue counter-cyclical fiscal policies. It may be noted that tax collection has already been much below the expectation making it difficult for the Government to announce stimulus package to check growth slowdown.

Earlier, this month, the Monetary Policy Committee (MPC) lowered growth projection for current fiscal to 6.9 from 7 per cent with risks somewhat tilted to the downside. Later the minutes of the MPC meeting said that High frequency indicators of services sector activity for May-June present a mixed picture. Tractor and motorcycle sales – indicators of rural demand – continued to contract.

Among the indicators of urban demand, passenger vehicle sales contracted for the eighth consecutive month in June. However, domestic air passenger traffic growth turned positive in June after three consecutive months of contraction. Commercial vehicle sales slowed down even after adjusting for base effects. Construction activity indicators slackened, with contraction in cement production and slower growth in finished steel consumption in June. Import of capital goods – a key indicator of investment activity – contracted in June.

India’s economy to grow at 7 per cent in 2019

In July 2019, the International Monetary Fund (IMF) lowered the growth estimate for India by 30 basis points for the current as well as the next financial year. It said that India’s economy is set to grow at 7 per cent in 2019, picking up to 7.2 per cent in 2020. The downward revision for both years reflects a weaker-than-expected outlook for domestic demand.

Now, all eyes are on the growth rate projection for the first three months (April-June) of the current fiscal which will be announced on August 31. It is estimated that growth rate could be in the range of 5.5 to 6 per cent. GDP growth rate for the last quarter (January – March, 2018-19) was 5.8 per cent, lowest in 20 quarters.

Published on August 23, 2019
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